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Nick Bamford: FCA platform focus must be on more than just price

It is important the upcoming platforms market study does not lose sight of the many benefits provided to both advisers and clients

Yet another regulatory review (though they tend to be called “market studies” nowadays), this time on investment platforms.

Way back when, we decided we did not want to be an early adopter of platforms. It took a lot of convincing for us to adopt one. At the time, it seemed there was a lot of experimenting taking place on the adviser community. As we know, some platforms are no longer with us and many are struggling to be profitable.

However, the market appears to be maturing, which probably accounts for the numbers quoted in the FCA terms of reference.

Its paper, Investment Platforms Market Study Terms of Reference MS17/1.1, tells us assets on platforms increased from £108bn in 2008 to £592bn in 2016. Combined with £100bn from firms offering similar services (such as workplace savings schemes), this accounts for about 78 per cent of the retail investment market.

Flexing their muscles? FCA challenges platforms on their buying power

I am not surprised. Platforms have made life much easier for both clients and advisers. Whereas in the past, clients would have to wait to receive a statement or phone the provider to get a valuation, they now have 24/7 instant access to them online.

Platforms also make the adviser business more efficient in implementing investment portfolios. Rebalancing and fund switching are more effective too, and the regular servicing of clients is enhanced.

What I hope the market study proves is that there is a symbiotic relationship between adviser and client where platforms are concerned. What is good for one is good for the other.

Part of the investment advice process is client education. Clients should be aware of and understand every part of their portfolio. X-ray services provided by platforms should be an aid to helping clients do so.

At the very least, they should know why their money is invested in a particular way at both asset class and fund level. It is much easier to do this via a platform than wading through multiple pages of data.

Vertical integration focus in FCA platform study welcomed

The consolidated tax vouchers produced by platforms and the capital gains tax calculators available also save clients and advisers time in tax reporting.

In my view, platforms are a cost effective way of managing portfolios, so I hope the study does not simply switch its emphasis to charging levels and methodology. I know the FCA wants a cost competitive marketplace but it needs to focus on value, not price in isolation.

Platforms are not products; they are a service tool. And while one might be more expensive than another, price should not be the only factor in selection.

Nick Bamford is executive director at Informed Choice

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Nick. Very much agree. The key issue often forgotten is that funds are, for the vast majority, bought at institutional rates rather than retail so if price is to be considered surely that is one of the most over-riding factors to be considered other than those you have already highlighted. All to often this is forgotten.

  2. Well that is all wholly sensible and straightforward, Nick, so there’s absolutely no chance that the FCA will follow your suggestion.

  3. I wonder how many senior people in the FCA drive a Dacia Sandero?

  4. Agreed. Wraps are not products but their ownership (most at least) by the big product companies muddies the water and that together with the fact that the customer pays for it is why the FCA still tends to see them as products rather than technology. If they make the IFA’s life easier – so what, that’s good for the customer too.

  5. I’m not sure I agree. A platform is just a utility. Provided it is solvent and robust and has a reasonable website for reporting and valuations, then I think price is important.

    I have researched pretty exhaustively and can’t find a better deal than The Share Centre, that seems to knock the others in a cocked hat.

    They charge a flat fee irrespective of portfolio size – £4.80/month including VAT.

    Yes there are dealing charges on top. For a 3 month frequent dealer there is an upfront £24 charge and then £7.50 per deal. So for the first deal of say £5,000 you pay £31.50 and subsequent deals are just £7.50 for the 3 month period.. Or you can just go on normal tariff at 1% per deal.

    If you use their ready made ISAs there is no dealing charge.

    If you deal in penny numbers, probably not the cheapest but for a few decent deals per year it works out pretty well.

  6. Nicholas Pleasure 1st August 2017 at 9:22 am

    Price is important but so is functionality. The FCA needs to understand that a platform usually SAVES the client money, if their portfolio is being properly managed.

    Imagine how much the average IFA would need to charge a client to do a re-balance on twenty individually held funds? New applications, AML, suitability, key features etc. We forget that something that used to take weeks of paperwork is now done at the touch of a button.

    Do the FCA really want to go back to the old days where clients bought a portfolio and that was that?

  7. I really do think that the FCA has either forgotten (or possibly doesn’t know) that every client does get the benefit of purchasing power via a platform. Its called institutional rates on the funds. However for the FCA, it seems to be be the case that cheaper is best in everything it does (other than self-spending obviously)

  8. Nicholas Pleasure 1st August 2017 at 10:33 am

    I continue to worry that reviews like this are a smokescreen to make it look like the FCA is doing something when the real issues are the sale of UCIS which they seem unable to control (despite their £500,000,000 annual budget).

  9. Good article Nick and I agree that price is just one consideration because a platform needs to be able to support the client and investment proposition first to even be considered?

  10. I would be interested to know how much of those assets on platform are advised. I suspect its a very low number, with the vast majority being direct or institutional.

    Therefore I doubt the regulator cares one jot about what advisers think…

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